Jackson Hole anticipation ramps up in the City

Decided what you’re doing for the long Bank Holiday weekend? Plenty of market-watchers already know. For weeks, now, they have had the date inked into their diaries.

Because next weekend sees the annual economics symposium at Jackson Hole, Wyoming, at which the world’s two most important central bankers – Janet Yellen of the US Federal Reserve and Mario Draghi of the European Central Bank – will both be speaking.
Held every year since 1978 by the Kansas City Federal Reserve Bank, the event is a get-together of central bankers, academics and other policy experts, who discuss future trends in economics and central banking.
It originated as a deeply technical event, rather than a forum for central bankers to share their thoughts on the state of the economy with the world’s investors and media, although it has evolved into that.
Ms Yellen’s two immediate predecessors, Alan Greenspan and Ben Bernanke, both used Jackson Hole to indicate at future shifts in policy and, since the financial crisis, this has become more common.
For instance, Mr Bernanke signalled in 2010 that the Fed was preparing to launch a second bond-buying programme – Quantitative Easing (QE) in the jargon – and in 2012 hinted at his preparedness to launch a third.
Mr Draghi himself, in 2014, grabbed most attention when he indicated that the ECB was also set to launch a full-blown programme of QE. Last year, Ms Yellen attracted most headlines, delivering a hawkish speech that sent the US dollar higher.
So all eyes will be on whether Ms Yellen or Mr Draghi choose to send any signals to the markets on their current thinking.
The focus will be most intense on Mr Draghi.
The big macroeconomic story this year has been the unexpected strength of the Eurozone, in particular, southern European economies like Spain and Italy. This has propelled the euro’s value higher and made it the world’s strongest-performing major currency this year.

It has led some investors to speculate that the ECB may wind down its asset purchase programme, under which it is buying €60 billion worth of assets each month and which is not due to finish until the end of the year, early.
During a speech in June at Sintra, in Portugal, Mr Draghi delivered a speech that investors interpreted as a hint at this – sending the euro to its highest level against the dollar for more than a year.
The ECB, worried about sending the euro to levels where it would make Eurozone exports less competitive, have since sought to play down his remarks. It has indicated in recent days that Mr Draghi will not be giving any fresh clues on policy.
Yet that is not going to stop economists and traders following his speech closely.
Mark Wall, chief economist at Deutsche Bank, says: “The ECB Council has deliberately avoided setting expectations for the timing of a new decision on QE, let alone what that decision will be, and according to news wires Mr Draghi will respect that at Jackson Hole. [But] he could still make a throw away comment on the exchange rate.”
In the case of Ms Yellen, the big question investors have is how optimistic she is about the US economic recovery, which will in turn provide clues on the speed and extent to which monetary policy will continue to tighten.
The Fed has already indicated that it will shortly begin unwinding the $4.5tn worth of asset purchases that it has accumulated under QE, with the expectation is that it will begin shrinking its balance sheet in September, while Mrs Yellen’s speech will also be studied for hints on the timing of further interest rate rises.
Starting in December 2015, the Fed has raised interest rates four times since the financial crisis, including hikes in March and June this year. At least one more move is expected in 2017.
It promises, for market-watchers, to be an intense weekend.